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What does this mean for amazon (currently pe ratio of 300+)
Investors buy Amazon because it's popular, not that its financials make sense.
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There absolutely is. For a company to be valuable, it must return more profit to shareholders than they put in. The P/E ratio indicates how long it will take for this to happen.
Not really, it indicates how long if nothing changes over the long term. Which never happens. Netflix is growing very rapidly which makes P/E all but meaningless for "how long" questions.
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Yes. Any public company must ultimately pay a dividend to be valuable. Edit: All of my responders are ignoring my use of "ultimately". A company can certainly invest in growth, but growth only matters if the company eventually returns money to shareholders, and the only way to do that is a dividend.
No, as I explained up here. It can use the money to grow.
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App store with a Netflix login in front? Same way they distribute their current app.
And how would they persuade Google and Apple to let them install apps directly on people's devices?
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Alternately, Netflix's DVD service is still around and still has a much better selection than Netflix.
Unfortunately they've been letting their back catalog rot away but I still find a minimal DVD subscription to be a good way to watch both brand new and older films.
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You're kidding on the "Applied neural networks" bit right? A good subset of the features you see on Facebook and Google have neural networks contributing to their functionality.
Adding value to our society may be the part the parent comment questions.
I study stock market for more than a decade, for long term, and I perfectly now that company data should not be analysed in a isolatedly, but, any stock with P/E ratio 230.24 you need to be very careful, and put just the money you can afford to lose without disturb your sleep. For whom that does not understand company ratios, a P/E ratio 230.24 is meaning that you need 230 years of profits to return to you the price…
My view is that profits are low because NFLX is investing everything in original content.Their last 4 quarters of profit is about $550 million. But their spend on original content is expected to be $7 - $8 Billion in 2018 [0]. Theoretically, that $7 - 8 Billion, less income tax, could fall to the bottom line, putting their P/E in a much more reasonable ~20 range.
AMZN is taking the same strategy: Invest in growth above all else and defer profits until the company is 'huge'. Moreover, for NFLX, revenue growth is accelerating (+23% 2016 vs. +30% 2017). Given the performance of management, both at NFLX and AMZN, it's a reasonable calculated risk to buy shares, even today, even at these outrageous prices.
[0] http://www.adweek.com/tv-video/netflix-is-increasing-its-spe...
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That is orthogonal to the network effect you see at play here, not contradictory
Network effects occur when usage increases the value of the product, as with Google or Facebook. With Netflix, usage does not increase value. It instead creates more revenue, enabling Netflix to invest in fixed costs, creating scale economies. To illustrate, if Netflix were boundlessly funded in their early days, they could create a product that's just as valuable as it is today, even though they had no customers, an…
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Are you talking about their shows sometimes costing $7M an episode? Do you know which ones besides House of Cards and The Crown?
Sense8 was comparably expensive but has since been canceled.
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> if you look at amazon they have never generated cash relative Isn't this one of those big Amazon myths? I thought the truth was that the income has always been there but it's the constant reinvestment that has kept profits low?
That's how people justify investing in Amazon. But I don't know how they think Amazon can just stop reinvesting one day and make money. Every business line Amazon has is hyper competitive. Can Amazon actually raise prices in any of their businesses?
Does the money disappear if they stop reinvesting?